Medicare drug spending spike shows need for generics

An exclusive Associated Press report, which found that Medicare’s spending on certain drugs soared by 85% in two years, emphasizes the government’s need for increasing the use of generics.

The AP report said that Medicare’s spending on high-cost “catastrophic” protection drugs jumped from $27.7 billion in 2013 to $51.3 billion in 2015, primarily due to rising brand-drug costs. AP’s data includes costs to taxpayers, insurers, and beneficiaries, as compiled by Medicare's Office of the Actuary.

The soaring costs were led by hepatitis C drugs Harvoni and Sovaldi (Gilead Sciences). The two drugs accounted for nearly $7.5 billion of Medicare’s catastrophic drug costs in 2015, up from around $3.5 billion in 2014. Other drugs that skyrocketed in price included Gleevec (Novartis) for leukemia and Revlimid (Celgene) for cancer.

“These findings underscore a growing need to make sure that generic drugs are available to hold down public program spending, while increasing patient access to more affordable medicines,” said Chip Davis, president and CEO of the Generic Pharmaceutical Association (GPhA).

In fact, generic medicines saved the U.S. health system $254 billion in 2014, with $33 billion of these savings accrued to Medicare, according to GPhA’s annual Generic Drug Savings in the U.S. report.

And, without generic drugs, Medicare spending would nearly double, according to Davis. “Increasing access to generic drugs for Medicare enrollees translates to significant savings for the program, taxpayers, and patients, and particularly the 12 million Medicare low-income subsidy (LIS) beneficiaries,” he said. The nonpartisan Medicare Payment Advisory Commission (MedPAC) estimates that changing LIS policies to improve generic utilization for this group could save more than $18 billion over 10 years.

One way to realize these savings is for Congress to lower the LIS copay for generic drugs, an effort that can encourage enrollees to choose generic when the option is available, according to Davis.

Meanwhile, one senator is investigating whether Medicare's prescription drug benefit is vulnerable to manipulation by pharmaceutical companies. After the AP report was published, Sen. Charles Grassley (R-Iowa) asked whether Medicare’s prescription program is being handled correctly in a letter to the agency. "Do you believe there is potential for exploitation of the catastrophic benefit as it is currently framed?" Grassley asked.

Plus, the Congressional Medicare Payment Advisory Commission recently warned that spending on the prescription program is rising at an "unsustainable" rate, singling out specialty drugs covered under Medicare's catastrophic protection.

GPhA suggests several additional measures for increasing access to generics and reducing Medicare drug spending. Policymakers should ensure that “a fully-resourced [FDA] can address the backlog of more than 3,100 generic drug applications and shorten FDA median generic drug approval timelines,” Davis said.

Davis is also urging Congress to repeal Section 602 of the Bipartisan Budget Act of 2015. “The Medicaid rebate increase for generic drugs in the budget deal is bad for Medicaid and its beneficiaries, bad for taxpayers, and it should be immediately repealed,” he said.

Davis is also urging Congress to pass the bipartisan CREATES Act, the FAST Generics Act, to curb some brand-drug company abuses of FDA safety programs such as Risk Evaluation and Mitigation Strategies (REMS). This would result in an estimated savings of $2.4 billion to $3.2 billion over 10 years, he said.

Finally, Davis believes Congress should work closely with industry and regulatory partners to ensure that the framework for biosimilar drugs expands and expedites patient access. Savings to the U.S. healthcare system from biosimilars are projected to reach between $57 and $110 billion from 2015 through 2020, according to the IMS Institute for Healthcare Informatics.